December 18, 2018
How To Leave Assets to Children in an Estate Plan | Berry’s Bites
How To Leave Assets to Children in an Estate Plan. Does it make sense to follow a pillow case of money approach or do you want to offer a lifetime of asset protection? You can build in asset protection with a trust.
Hey, there. This is Chris Berry with another episode of Berry’s Bites. Today, we’re gonna talk about how do we leave things to our beneficiaries. And a lot of times, I see what I call the pillowcase of money approach, where we’re just leaving pillowcases of money to our beneficiaries. Think of beneficiary designations. Have you named your beneficiary outright on a life insurance policy, or IRA or 401k? And this could be a problem for two reasons.
How To Leave Assets to Children in an Estate Plan Transcript:
Hey, there. This is Chris Berry with another episode of Berry’s Bites. Today, we’re gonna talk about how do we leave things to our beneficiaries. And a lot of times, I see what I call the pillowcase of money approach, where we’re just leaving pillowcases of money to our beneficiaries. Think of beneficiary designations. Have you named your beneficiary outright on a life insurance policy, or IRA or 401k? And this could be a problem for two reasons.
First of all is a financial immaturity of the potential children or beneficiaries. For example, my children, you see pictures of them right there, Ryan and Madison, they’re now eight and six, if they were to inherit property outright, they’d probably spend all that money on legos, which I think would be kind of fun but probably not the best use of the money.
So we need to protect against financial maturity, when they’re minor children, so under the age of 18. But then, once you turn 18, legally you’re an adult. And now, I remember what I was doing 18 to 25. And if I were to inherit $5000, $50000, or $500000, I would have been the coolest kid on campus but that probably would have been my only year on campus.
So the first thing is financial immaturity that we need to protect against. But then, the second thing we need to protect against is the outside environment. So we need to protect against the divorces, the lawsuits, creditor actions, bankruptcies, longterm care costs. You never know when life is gonna throw you a curve ball. And so, if we rely on those pillowcase of money approach, where we’re just launching pillowcases of money at our beneficiaries by naming the outright as … on the life insurance, or the 401k, then that money could be lost.
And then, if you look at a lot of the trusts that we review, unfortunately, even the trusts take this pillowcase of money approach, where we’re leaving things outright to the kids at 25, or 30, 35. So that’s something to think about. Do you have a revocable living trust that says outright distributions to kids at 25, 30, 35? Well, what happens if they happen to get divorced at 36? Where might half of that money go? Or what happens if they were to pass away at 36? Where might all of the money go? It might go to that spouse who might remarry, versus going down to the grandchildren.
So instead, what we like to do is build in a lifetime of asset protection for our beneficiaries, so that once they turn a certain age, maybe age 30, then they can serve as trustee. But whatever they decide to leave in the trust would be protected for their lifetime, from a divorce, a lawsuit, creditor action, bankruptcy.
Sitting down with an attorney the other day for lunch and he was talking about the trust he has for his daughter, and he used what we call hems. He’s built in provisions where the money can only be used for health, education, maintenance and support, and he was asking whether that offered asset protection. It can. It’s a level of asset protection, but it’s certainly not protecting against longterm care costs. So instead, we like to use what we call legacy inheritance trust provisions, where the money that we leave to our beneficiaries would be protected for their lifetime.
So let’s say you had a trust. Your one trust would split into three separate shares, if you had three children, where each child could now receive their share. So it’s held in trust, held in this legacy inheritance trust, where there could be the trustee, manage the money, receive the income and even get access to the principle.
So think about, how are we leaving things to the beneficiaries? Do you want that pillowcase of money approach for you beneficiaries, or do you wanna offer them a lifetime of asset protection?